Its a Sunday night. October 2013. Parents are making sure the kids homework is done. Football fans are settling in for the nights NFL matchup. Reigning champs, Baltimore, are about to lose.

And all hell is breaking loose in the precious metals markets.

Moments before electronic trading opened at 6 p.m. EDT, Commodity Exchange Inc.  the Comex  announced it would settle a large gold contract in cash and not gold. To be blunt about it, the Comex has defaulted on its contract. Suddenly, everyone else with a gold contract  or a silver contract  started to wonder if theyd be next to get stiffed.

Gold, which ended that autumn week at $1,715 an ounce, starts gyrating wildly but mostly up. By Monday morning, its up past $1,800.

But good luck trying to get that price  or anything near it  at a coin shop or online dealer. Under normal circumstances, a $1,800 spot gold price would mean U.S. Gold Eagles around $1,890  a 5% premium. But on this day, buyers  desperate to get their hands on actual, physical metal because trust in the system is breaking down  have driven the price far above $2,000.

This is zero hour  the day you can mark on a calendar when the price of real metal breaks away forever from the quoted price on CNBCs ticker. Its the day youll be grateful you hold real metal and not a proxy like the GLD exchange-traded fund (ETF).

Sound far-fetched? Today, well show you why its inevitable

The Emperors New Clothes: Why Now Is the Worst Time to Give up on Gold

The zero hour scenario is the ultimate emperor-has-no-clothes moment.

Hans Christian Andersens original 19th-century tale The Emperors New Clothes has become a 20th- and 21st-century touchstone for obvious truths overlooked by the masses. It is almost a cliche. But it is singularly appropriate for our purposes today.

The emperor here consists of central banks, commercial and investment banks and the commodities exchanges. The day everyone recognizes them as being buck naked  or in this case, stripped of the gold they claim to hold  will be zero hour. Its the day youll be happy you held on, even as gold sank from $1,900 in September 2011 to less than $1,600 as we go to press.

You did hold on, didnt you?

Well, you can buy the dip, at least.

Caution: What we are projecting here is nearly the ultimate in fat-tail events. It is the product of deep research by one of the gold markets most plugged-in luminaries plus our own informed speculation.

But make no mistake: Zero hour  in the form of a precious metals default on the Comex, or maybe the London Bullion Market Association (LBMA)  is coming sooner or later.

The odds of it happening are about 100%, says Eric Sprott.

Mr. Sprott oversees $10 billion within the Canadian asset-management giant that bears his name. Among those assets is the Sprott Physical Gold Trust (PHYS)  our recommended vehicle if you choose to keep a portion of your gold holdings in a brokerage account.

To understand why its a certainty is to go deep down the rabbit hole into the vaults of the worlds central banks. Sit tight

12 Years and Counting: Demand Runs Away From Supply

We dont want to make it sound more complicated than it is. At root, zero hour will come when everyone knows gold supply can no longer meet gold demand.

When I look at the physical data that I can see in gold, Sprott told us in a recent interview, the gold market has not changed its supply fundamentals in 12 years. Its flat. Add up supply from new mines and recycled scrap gold  mostly old jewelry  and the World Gold Council reckons its rock-steady at about 3,700 tonnes (metric tons) per year.

And what about demand? Since gold began its bull run in 2000, scads of new demand sources have come into the picture.

* Central banks, which were net sellers of gold in the 80s and 90s, became net buyers * Exchange-traded funds like GLD and trusts like PHYS didnt even exist before 2004 * Annual sales of gold coins by the U.S. and Canadian Mints have grown fourfold * Chinese consumption of gold has nearly quadrupled * Indian consumption (measured by imports) has grown 30% from an already high level.

The mere combination of only five separate sources of demand, Sprott writes in a recent white paper, results in a 2,268-tonne net change in physical demand for gold over the past 12 years  meaning that there is roughly 2,268 tonnes of new annual demand today that didnt exist 12 years ago, when supply and demand were more or less in balance.

And those are only the official figures. There are lots of other purchasers of gold that I dont have records of, he elaborated in our interview.

So for example, when somebody physically buys a gold bar, whether its [hedge fund manager] David Einhorn or the University of Texas endowment or someone like that, theres no place that I can go and see how many bars were purchased. Theres no public documentation if Russian billionaires are buying gold. For every story that makes the news, like Einhorn or UT, there might be 10 purchases that occur sub rosa.

Summing up, nearly 2,300 tonnes (officially) of new demand each year are coming into a market where supply is still stuck at roughly 3,700 tonnes. So wheres the gold coming from? Mr. Sprott asks rhetorically. Whos supplying this gold?

After a research project thats gone on as long as the bull market in gold, hes left with only one plausible explanation  the one that makes default on a major commodity exchange inevitable.

Wait a minute, youre asking. You just said central banks became net buyers of gold in the last decade.

True but all the buying has come from developing countries like Russia, China, India and Kazakhstan.

Meanwhile, the numbers from the big developed countries  the U.S. included  have been static.

Remember the main reason central banks are in business  to benefit their biggest and most powerful member banks.

And whats beneficial to U.S. and European banks is gold leasing. Commercial and investment banks lease gold from a central bank at bargain rates  usually less than 1% a year. Then they sell that gold into the private market and plow the proceeds into well, anything that yields more than 1%. Its a sweet deal if youre a banker.

But then the gold is gone, right? Yes. If the central bank wants its gold back from the commercial and investment banks, those banks would have to buy gold on the open market  driving up the price. Thats a bad deal if youre a banker.

So usually, theres a tacit understanding: Central banks dont ask for their gold back, and the commercial and investment banks roll over their gold leases. As long as theyre earning more than 1%, the debt service is easy peasy.

But if a central bank asks for its gold back, its game over.

They can get away with [the leasing], Sprott explains, because on their financial statements, the one line they have for gold says gold and gold receivables. A receivable is not real gold, physical gold and we dont get a breakdown between the receivables and the physical. Theyve not provided that.

Look below and you can see the guile central bankers use to concede their gold holdings is not limited to bars in a vault.

It would not lend much credence to central bank credibility, Sprott writes, if they admitted they were leasing their gold reserves to bullion bank intermediaries who were then turning around and selling their gold to China, for example.

But the numbers strongly suggest that that is exactly what has happened. The central banks gold is likely gone, and the bullion banks that sold it have no realistic chance of getting it back.

"Every year, major banks and brokerage houses provide their four-year forecasts for the gold price. The following chart documents the average price projection of 25 top analysts over the past seven years, many of whom specialize in the resource industry. I might suggest pushing away from your desk so that when your jaw drops it doesnt hit the keyboard.

If I were a buyer of Gold, I’d insist on NOTHING but physical possession of it. Buying the so called ‘paper’ would be unthinkable to me. If security of my physical possession is a concern, that’s what safes are for. One can always rent a ‘deposit box’ at the bank as well, but I’d prefer a nice big(at least 1,000lbs) fire-rated safe, bolted to my basement floor to store things in.

That’s why you want to own mining stocks. You can get dividends now, and will be leveraged when TSHTF.

Don’t go crazy on them, no more than 3% of your portfolio in any one stock or 10 to 15 % in the sector depending on your risk tolerance. The sector ETF is GDX, which pays about a 1.24% dividend, and it’s currently a falling knife, so this not for the faint of heart. Use stop losses or options so you don’t get sliced up too badly.

Investing is about patience and judgment, because the market will always be one step ahead of you.

That's the reason all currency, money relegated to having value but has none is known as fiat money, to mean it has no intrinsic value, its value simply by government fiat, government proclamation, the government simply saying so.

(It has nothing to do with the Italian automobile manufacturer, FIAT, which many say due to its poor workmanship is an acronym for, Fix It Again, Tony .)

7
posted on 03/10/2013 10:07:12 AM PDT
by lbryce
(BHO:"Now, I am become Death, the destroyer of worlds by way Oppenheiner at Trinity NM)

That might be true for any given article of this type, but it does not negate the absolute truth of the article: that there will be an official default.

I would say that the Germans trying to get their gold back from New York have provoked a de facto default. The most obvious explanation as to why would it take seven (?) years to move many things each the size of a brick from point A to point B is that they just don't have them right now. Any security concerns offered as reasons not to move it in a timely matter, despite the matter of that diamond heist in Brussels in February, are simply red herrings.

And there is precedent. When nickel officially defaulted in 2006, the criminals at COMEX (aka CRIMEX) simply said, eh, ok, sellers pay buyers one percent per day until they can deliver. You can bet that gold would be going up more than one percent per day in that scenario, and CRIMEX wins again.

9
posted on 03/10/2013 10:13:38 AM PDT
by jiggyboy
(Ten percent of poll respondents are either lying or insane)

If you wish to invest in gold stocks, that’s fine. Although I own PMs and have invested in and traded PM stocks in the past, I do not like them now. That doesn’t mean I may return to them in future...but I think investing in them is kind of wrong now. That’s just my opinion.

But GDX is IMHO absolute poison. GDX is a Goldman Sachs fund and they use it to short mining stocks by shorting the whole sector. It is poorly diversified, about 12% ABX and about 12% GG, the rest little snippets of about 1% or less of many other companies. I heartily unrecommend it.

The South African Krugerrand is 1.1 ounces, 1.0 ounces is gold and the other .1 ounce is copper. Pure gold is to soft to make into coins without an alloy. The copper gives the Kruggerrand it's distinctive 'red' hue. I bought many of these in the early 90's for $382.00 each.

She told no one. I am her friend and business partner and I had no idea that she had physical PMs until after the incident.

She did everything right and still almost got murdered. Her only screwup was not being armed 24X7. She and hubby were unarmed when the surprise stickup went down.

My point is that when you order PMs from another state, someone at UPS/Fedex knows that a package left a PM seller and went to a particular address. It could be a driver, clerk, manager, or whatever.

Or it could be an employee of the bullion seller who sells the info on the black market for money. It could have been a bank employee who knows what credit cards numbers and addresses are tied to bullion sales.

The South African Krugerrand is 1.1 ounces, 1.0 ounces is gold and the other .1 ounce is copper. Pure gold is to soft to make into coins without an alloy. The copper gives the Kruggerrand it's distinctive 'red' hue. I bought many of these in the early 90's for $382.00 each.

Thanks for the info. I had been wondering how gold coins manage to not get damaged through the years, since pure gold is soft. I didn't expect that every collector was ultra-careful.

Even if someone doesn't know you have PMs, just seeing a gun safe will clue them in that you have something worth stealing. Safe deposit boxes are also suspect, since I don't trust the government to stay out of them. Hiding within the walls of a house or something similar is dangerous in the event of fire.

Are you new to this? A one ounce gold coin contains one ounce of gold. If they are soft pure 24C gold, the coin weighs one ounce. (Troy, of course, we are talking about.)

If they are harder 22C gold, they still contain one ounce of gold, plus copper, silver and other metals to make them harder and more durable. In that cases, the coins weigh about 1.1 ounce, with 1.0 ounces of it being pure gold.

Well, Plan B is to wait for the government to come to their senses, then...WAIT! What am I talking about? LOL! Ill liquidate before that happens, and turn those hard assets into other hard assets: land, a paid off farm and more ammo, etc.

Good plan (the latter, that is!). I wonder - when Roosevelt confiscated gold last time - he did pay the FMV for it?

Some coins are “soft” pure gold. Canadian Maple Leafs, Chinese Pandas, and some others. Normally they are each kept in a little plastic case, except for inspections at sale. They can ding each other up if stored against one another.

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